Correlation Between National Reinsurance and DMCI Holdings

Can any of the company-specific risk be diversified away by investing in both National Reinsurance and DMCI Holdings at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining National Reinsurance and DMCI Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between National Reinsurance and DMCI Holdings, you can compare the effects of market volatilities on National Reinsurance and DMCI Holdings and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in National Reinsurance with a short position of DMCI Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Reinsurance and DMCI Holdings.

Diversification Opportunities for National Reinsurance and DMCI Holdings

0.67

Correlation Coefficient

National Reinsurance  DMCI Holdings

Poor diversification

The 3 months correlation between National and DMCI is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding National Reinsurance and DMCI Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DMCI Holdings and National Reinsurance is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on National Reinsurance are associated (or correlated) with DMCI Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DMCI Holdings has no effect on the direction of National Reinsurance i.e., National Reinsurance and DMCI Holdings go up and down completely randomly.

Pair Corralation between National Reinsurance and DMCI Holdings

Assuming the 90 days trading horizon National Reinsurance is expected to generate 3.65 times more return on investment than DMCI Holdings. However, National Reinsurance is 3.65 times more volatile than DMCI Holdings. It trades about 0.05 of its potential returns per unit of risk. DMCI Holdings is currently generating about 0.0 per unit of risk. If you would invest  56.00  in National Reinsurance on September 24, 2024 and sell it today you would earn a total of  13.00  from holding National Reinsurance or generate 23.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	89.63%
Values	Daily Returns

National Reinsurance  vs.  DMCI Holdings

National Reinsurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Reinsurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, National Reinsurance is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

DMCI Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DMCI Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with National Reinsurance and DMCI Holdings

The main advantage of trading using opposite National Reinsurance and DMCI Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Reinsurance position performs unexpectedly, DMCI Holdings can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in DMCI Holdings will offset losses from the drop in DMCI Holdings' long position.

The idea behind National Reinsurance and DMCI Holdings pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.